Alphabet’s (GOOGL.O) Google, Amazon’s (AMZN.O) retail and cloud services, Apple’s (AAPL.O) devices and software, and Meta Platforms’ (META.O) generative artificial intelligence software all have notified the European Commission that they qualify as gatekeepers under new EU tech rules, EU industry chief Thierry Breton said on Tuesday. The companies must now comply with new restrictions designed to curb their power. The rules, which come into force in May 2023, will prevent them from giving their services a higher ranking on their platforms or using rivals’ data to compete with them. Companies that fail to comply could face billion-dollar fines.
The move by the five technology giants is likely to dampen investor excitement about the sector, which has seen a flurry of acquisition activity as investors seek out growth and diversification from slowing ad sales. The five companies offer consumers cloud computing and streaming media while competing in the hardware market. They are among the most profitable in their respective industries and have the resources to explore other sectors, including robotics, life sciences, and anti-aging.
In advertising, Alphabet’s ad revenue growth decelerated in 2022 as it faced headwinds from Apple’s privacy changes on iOS and direct competition from TikTok, a popular social video platform. It offset those challenges with the rapid growth of its cloud business and subscription-based media offerings, but its ad revenues still fell by nearly a third from a year earlier. Meta’s ad revenue growth also slowed in 2022, with the company facing more pressure from Apple’s platform changes and competition from TikTok.
While Alphabet’s restructuring as a conglomerate helped to isolate its core businesses from the more risky, research-focused ventures, it also reduced the visibility of the new structure to EU regulators. That may have lessened the glare of scrutiny on its primary business, but it didn’t protect Google from investigations into its dominance in search and other sectors.
Alphabet’s restructuring and reorganization of its divisions were meant to lessen the potential for regulatory action from governments worldwide and help the company prove it can deliver profits even as it expands into new areas. It also allowed Page and Brin to retain their control of the company by keeping a majority of voting rights.
The EU’s Digital Markets Act, which came into force last November, defines a “gatekeeper” as a company with over 45 million monthly active users in Europe and a 75 billion euros market capitalization. It is intended to limit the power of large online platforms that dominate their markets and are deemed dominant by the EU’s antitrust commissioner Margrethe Vestager. It also aims to reduce the time it takes for competition investigations. The new law has already led to the sale of several of the largest U.S. technology firms and prompted more than two dozen antitrust probes in Europe.